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Schenck Process - New Issue Comment

TRANSACTION OVERVIEW

Schenck Process, the German provider of high-end equipment and solutions (mainly related to industrial conveying operations), is to issue €425m of 5.5NC2 senior secured notes. Proceeds will be used to fund Blackstone’s LBO of the company. The private equity firm reached an acquisition agreement with previous shareholder IK Investment Partners on 21 September 2017 based on an enterprise value of €598m, or 7.25x LTM adjusted EBITDA as of the end of September. The company’s expected ratings are B3/Positive and B/Stable from Moody’s and S&P respecti-vely.

WE INITIATE OUR COVERAGE WITH A STABLE TO POSITIVE VIEW

We initiate our coverage on Schenck Process with a Stable-to-Positive credit view. The company has been successfully transformed from a sole manufacturer of industrial equipment for a variety of industries to a provider of value-added services which for the most part include industrial process improvements and maintenance. It conti-nues to operate both manufacturing and services operations but derives 85% of its adjusted EBITDA (85%) from the more stable and predictable aftermarket activity. Although Schenck is exposed to a number of in-dustries, most of which are cyclical, those tend to respond to different cycles, providing a degree of protec-tion against industry-specific adverse developments. Furthermore, we recognize the company’s potential to increase its aftermarket penetration on its owned installed equipment base, currently standing at 50%.